Why Chipotle’s CEO Needs the Stock to Rise 45%

The burrito chain’s board says the stock price and sales have to rise for the CEO and other executives to receive their full compensation.

By

Avi Salzman

April 7, 2017 12:54 p.m. ET

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Chipotle CEO Steve Ells will need to sustain high sales growth if he wants to earn his full compensation.
Photo:
Getty Images

Nobody likes it when top executives make a ton of money even when a company’s performance stinks. And Chipotle’s board is trying to keep that from happening.

With Chipotle’s stock price still subdued after a difficult year and a half, the company’s board is now demanding that top executives lift the company’s sales and stock if they want to get paid the big bucks. Chipotle shares fell 21% in 2016 as it struggled to recover from an E. coli outbreak in late 2015. After a recent upswing, shares now trade around $448.

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The Chipotle board wrote new rules that say top executives need to get the stock to an average price of $650 over 60 days by February 19, 2020 if they want to receive their full reward, according to filings the company made with the Securities and Exchange Commission. If the stock rises to $600 they’ll get 50% of the award.

And that’s not the only target they have to hit. They’ll need to achieve 7% annual same-store-sales growth from 2017 until the end of 2019. The stock price goal accounts for two-thirds of the payout, and the sales goal accounts for one-third.

The payoff will be big if they do it. CEO Steve Ells could receive stock worth $8.6 million in 2017 if the company hits these goals. That’s a 31% reduction from what he was eligible for last year (he also made $1.5 million in base salary in 2016).

It’s a sign that “management remains highly motivated to drive the stock price higher,” wrote Credit Suisse analyst James West.

Big Picture: Chipotle’s board added new performance requirements for top executives to get higher payouts.

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